China Probes US Coffee Company

China’s top business and commerce regulator is investigating Luckin Coffee, after the Nasdaq-listed coffee chain revealed that much of its 2019 sales were fabricated and caused massive losses for many investors, reported The Wall Street Journal. 

More than a dozen officers from the country’s State Administration for Market Regulation raided Luckin Coffee’s headquarters in Xiamen on Sunday, April 26, demanding full access to the company’s accounts, transaction records, and internal systems, according to a person familiar with the matter. The on-site investigation is likely to continue through the week, the person added.

Luckin confirmed the probe on Monday, saying in a statement that it is “actively cooperating” with the market regulator and providing information about its business. The company also stated its stores across the country are operating normally. The Chinese regulator didn’t respond to a request for comment.

The probe into Luckin by one of China’s most powerful business regulators marks the most significant action taken so far by Chinese authorities, which earlier this month publicly condemned the upstart coffee chain for its accounting misconduct. It also points to a conundrum facing regulators in both the US and China when it comes to reining in financial misdeeds of US-listed Chinese companies.

Luckin went public on the Nasdaq Stock Market in May 2019 and raised more than US$1.5 billion from investors over the past year, taking advantage of a rising share price that was buoyed in part by its inflated quarterly results. The company disclosed on April 2 that as much as 2.2 billion yuan (US$310 million) in sales transactions were fabricated by some employees, and that an internal investigation is being conducted. Its American depositary shares have been suspended from trading since April 7.

Full Content: Wall Street Journal

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